Choosing the Right Coin for your Crypto Futures Trading Strategy
The world of crypto investing and trading offer innumerable options to anyone willing to dip their toes in it. One such great trading alternative is crypto futures trading. This term is widely used, however, for the sake of your convenience, let us first learn what it means to trade in crypto futures whereafter we will disclose all the crypto futures trading strategy one might need in order to turn it into a profitable endeavour.
Crypto futures trading involves the buyer getting into an agreement with the seller to buy an underlying asset in the future, however, the price of such sale is determined at the time of getting into such an agreement. It is essentially a bet between two investors who are willing to go out on a limb and try to predict the future price of an underlying asset without having to actually buy any such asset. This trade is often made based on the intuition and study of several important factors. In this blog, our aim is to arm you with the necessary information so that you can make informed decisions when it comes to finding the best strategy for futures trading in crypto.
Key Factors For Choosing the Right Coin
While the fundamental idea behind crypto futures trading strategy might seem to be driven by a wagering principle, it is important to note that there are several different factors that could assist an investor when they look for their crypto futures trading strategy best suited for their goals and risk appetite. We have summarised these factors below for your better understanding:
Liquidity
The term signifies the ease with which an asset can be converted into another asset or cash without touching their price. Higher liquidity in reference to a crypto asset reduces the risk involved and assists the investor in selling the same quicker. However, when it comes to futures trading in crypto, choosing a crypto asset with higher market liquidity leads to reduced slippage as well as a tighter bid-ask spreads. Needless to say, a highly liquid crypto futures asset also makes the execution of trades a seamless experience for all parties involved. Popular crypto assets like Bitcoin, Ethereum, etc. are considered highly liquid.
Volatility
As the term suggests, volatility means the rate at which the price fluctuations of a given crypto asset occur. While these fluctuations are common across all sorts of markets, including traditional financial ones as well as crypto, it is to be noted that crypto markets tend to experience such volatility at a far greater pace than the traditional ones. Since the trade of crypto futures involves betting on the movement of price of an underlying asset, one would assume that higher the volatility, the higher the profit. However, while choosing a crypto asset that is highly volatile, a trader must take into account the higher risk that is posed by investing in such an asset. Analysing ones risk appetite and strategy against the volatility history of underlying assets is a great way to ensure that you are on the right path.
Fundamental Analysis
Any guide on crypto trading and investing often requires its readers to conduct two main kinds of analysis, one is fundamental, the other is technical. Fundamental analysis involves the study of the crypto asset offering entity’s concept, team, technology, partnerships, stakeholder relationships as well as the support it garners from the community in general. A thorough understanding of the entity’s work can assist you in ascertaining how the underlying crypto asset’s price will behave in the time to come. If one goes for crypto assets that are backed by entities with a strong foothold in terms of their use cases, expertise and stakeholders backing, one can safely make appropriate trading decisions.
Technical Analysis
Another type of analysis often recommended by crypto guides is technical analysis. An approach common across all exchanges, it involves analysing the statistical trends over a period of time in order to predict the future movements in prices of crypto assets. This analysis is based on historical data collected and dissected to arrive at findings pertaining to future trends. It is imperative for investors to recognise trends, patterns and potential entry or exit points of assets while they engage in futures trading. This method provides immensely valuable information regarding the sentiments of market as well as price movements. Methods such as trendlines, oscillators, or candlestick patterns are some that can be utilised by investors looking into technical analysis for formulation of the best strategy for futures trading crypto.
Risk Management
Now that you are done considering all the above factors while making a choice amongst the thousands of options available for your futures trading strategy, let us get to one of the most important factors, risk. Risk is a subjective term, however in the arena of cryptocurrency trading, especially futures trading, it stems from the volatility of the market. While the aforementioned factors could assist you in gauging your risk and mitigating it, you could also look into diversifying as a tool for decreasing your risk. Additionally, implementation of position sizing, setting up stop-loss orders and defining risk-reward ratio could also be utilised.
Regulatory Environment
The regulation concerning crypto currency trading, especially trading in the sphere of futures and derivatives tends to be highly dynamic. In light of the newer regulations popping up every other day, across the globe, the volatility of the market tends to get affected severely. While there is no one size fit all formula to protect your assets and trading profits from such regulation, one way is to stay constantly updated on the regulatory framework being devised and implemented in the relevant jurisdictions. A useful tool for the same is to set up Google news alert for crypto regulation and following the social media accounts of authorities in the arena.
Matching Your Crypto Futures Trading Strategy with the Right Crypto on Pi42
Conduct Your Own Research
All said and done, there is a method to this madness of devising the best strategy for futures trading in crypto. One manner is to equip yourself with all the necessary knowledge by reading the resources available online. However, in case that is not your jam, you can consult with financial advisors who would be more than willing to assist you in your journey of reaping profits in crypto futures trading with the finest of strategies.
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Since the market for crypto futures trading is currently booming, it is essential that traders and investors do their homework while venturing out and devising their own crypto futures trading strategy. Factoring in the liquidity of the underlying asset, as well as the volatility of the market and the asset are the pertinent factors to be considered. Further, one must look into the entity behind the underlying asset, their projects, team, future plans as well as stakeholder relationships in order to ascertain the best crypto futures trading strategy. Lastly, technically analysing the historical trends in addition to keeping an eye on the risk mitigation and regulatory framework is an important task for each investor. If your appetite is big but you fail to find the time to get yourself the necessary information, investing in a financial advisor to guide you, could be a good way out.